Should I invest even if my Fund is showing Negative Returns?

Should I invest even if my Fund is showing Negative Returns?

When funds we have already invested in are showing negative returns like in the current market scenario, it may actually make sense to add more to that investment.  Here is why ?

You have invested 50000 in Axis Bluechip Fund at a price (NAV) of 32.22

and have 1551.831 Units.

The NAV of Axis Bluechip is today 26.50

So the value of your investment is Rs.41123.52 down by Rs. 8876.48

or -17.75%

Now suppose you invest another 50000/- today in Axis Bluechip at 26.50.

You will get 1886.792 Units

So now  you have invested 1 lakh and have 3438.62 Units

Invested	NAV	Units	Total Units
50000	32.22	1551.831	1551.831
50000	26.50	1886.792	3438.62

Let's analyze the results

·         When you invest at lower prices you get more units for the same amount

·         For the first investment our cost is 32.22 per unit.  after the second investment our cost comes down to 29.08 per unit. Now we do not need the NAV to go back to 32.22 to start gaining from our investment but once it reaches 29.08 we start gaining

·         From 32.22 to 26.50 is a drop of 17.75%  But from 26.50 to 32.22 is a rise of 21.58% !!!

Of course this whole exercise hinges on the fact that the fund is a well managed fund with a portfolio poised to recover in the coming months.

·         So investing when the price is down is more beneficial.

Happy Investing!

Michael Duarte

It may not be the best decision to stop your SIP right now..

It may not be the best decision to stop your SIP right now...

The current locked-down situation has resulted un uncertainty of our finances in the immediate future at least.

In an attempt to stream-line our finances one of the things that comes to mind is to reduce/stop our monthly investment in Mutual Funds (SIPs).  Well, this may not be the best decision.

Let us see how our SIPs work... Below are a two tables for an Equity Fund and the purchase details from April 2007 to March 2008 (At a normal time – when markets are stable and rising) and from April 2008 to March 2009 (At a time when the markets were collapsing – during the Financial Crisis of 2008)

FRANKLIN INDIA BLUECHIP FUND - GROWTH

Date	NAV	Investments	Units
10-04-2007	124.4232	5000	40.185
10-05-2007	130.3859	5000	38.348
10-06-2007	134.0950	5000	37.287
10-07-2007	145.0525	5000	34.470
10-08-2007	145.2212	5000	34.430
10-09-2007	150.6874	5000	33.181
10-10-2007	175.8169	5000	28.439
10-11-2007	173.6504	5000	28.793
10-12-2007	190.1854	5000	26.290
10-01-2008	192.7679	5000	25.938
10-02-2008	156.0509	5000	32.041
10-03-2008	148.7650	5000	33.610
Total:		60000	393.013

During a stable – rising market note the NAV column above.  Beginning at an NAV of 124 it went all the way to a high of 192 before coming down to 148.  During that time 5000 invested for 12 months (Rs. 60000) accumulated 393.013 Units

Let's see what happens in a Falling Market scenario (like now)

Date	NAV	Investments	Units
10-04-2008	145.7610	5000	34.303
10-05-2008	154.5640	5000	32.349
10-06-2008	139.4043	5000	35.867
10-07-2008	130.8970	5000	38.198
10-08-2008	144.0627	5000	34.707
10-09-2008	139.2883	5000	35.897
10-10-2008	108.6052	5000	46.038
10-11-2008	107.4882	5000	46.517
10-12-2008	99.6224	5000	50.190
10-01-2009	97.1565	5000	51.463
10-02-2009	99.8969	5000	50.052
10-03-2009	88.9042	5000	56.240
Total:		60000	511.820

During the next 12 months falling markets, note the NAV column above.  Beginning at an NAV of 145 it went up only in the next month to 154 and then began coming down finally settling at 88.  During that time 5000 invested for 12 months (the same Rs. 60000) accumulated 511.820 Units – 118.807 more units than in a rising market.

The NAV of Franklin Blue-chip today is 347... The Average Cost of the accumulated units was just 132 again helped by the units purchase in the falling market.

Period	Market Type	Investments	Units Accumulated	Value of 60000 at NAV of 347
April 2007 to March 2008	Stable rising market	60000	393.013	136375
April 2008 to March 2009	Falling Market	60000	511.820	177601

Rs. 120000/- invested during those troubled time would today be valued at Rs. 313977/-

While stopping our SIPs may be the first thing that comes to mind,  let us see if we can cut down expenses elsewhere. Already our leisure activities have been curtailed in the last fortnight.  The money saved here can surely go towards savings?

Let's think of ways to continue investing since it will pay us well when things settle down.

Best Wishes and Hope God keeps us all safe and gets us out of this situation soon

Michael Duarte

07th April 2020.

Corona Virus situation and Our Investments - First Thoughts

It's March 2020 We (the World) are in the midst of the Corona Virus Pandemic.......

There are more than enough articles, videos and the ever present whatsapp opinions on the virus situation gripping our lives today.  Most of what is said or written last week is already irrelevant because  of the situation evolving on an hourly basis.

Without adding more gyan on this subject I am giving below some thoughts that are pertinent to our investments.

Unless this is the end of the world as we know it - This situation will pass like all situations affecting our financial lives in the past.  If it is indeed the end of the world then our investments won't matter.

Since the situation as it is, has no precedent it is impossible to give a time line to the return to some sense of normalcy.  The reaction we are seeing now is panic and fear of the virus itself.  The after effects on the financial health of businesses and balance sheet numbers cannot be estimated - and it is this that will further impact stock prices and our portfolios in the coming months.

To understand the scale of a downturn lets visit the 2008 Financial crisis -

At that time the Sensex plummeted from 20812 (Jan 2008) to 8451 (Nov 2008) 10 months a drop of 60% (presently we are down 30%).  It remained around those levels for 6 months till March 2009 and regained 20000 in Oct 2010 (The comeback took 18 Months)

I'm daring to make a comparison with 2008 only because we were all investing at that time too.  The situation then was Financial mismanagement  in the US  our markets were affected only because of the size of their investments here.  Today the situation is Medical and Global without any positive news on the horizon so we cannot really compare the two situations.

I propose the following:

1) Ensure that you have enough cash flow to run your life and home for the next 12 to 18 months.  Hopefully this can be met without touching your investments in the Equity markets (through Mutual Funds).

2)If you are investing any amount monthly (through the SIP route) let that continue as you are accumulating more with every drop in the markets.  Let those monthly investments continue

If you can allocate a little more on a monthly basis this is the time to start considering

3) Do not withdraw more than you need for living expenses from your existing investments.  The loss you are seeing in your portfolio 'on screen' is temporary.  If you withdraw now that loss will be permanent.

Once the Governments are done with tacking the health issue that is staring in our faces now, they are bound to give assistance to revive the markets as is already being seen with The US Federal Reserve, The Bank of England and our own Reserve Bank of India.

At present of more importance is to take all precautions to stay healthy.

Best Wishes.

Michael Duarte (March 2020)